Participants:
Roger J. Beauchemin, President and Chief Operating Officer, McLean Budden
Gregory Chrispin, President and Managing Director, State Street Global Advisors in Canada
Mark Doyle, Vice President, JPMorgan Asset Management (Canada)Inc.
Len Racioppo, President and Director, Jarislowsky, Fraser Ltd.
Michelle Savoy, President, Capital Guardian(Canada), Inc.
Rajiv Silgardo, Chief Executive Officer, Barclays Global Investors Canada Limited
Warren Stoddart, Managing Partner, Connor, Clark & Lunn Financial Group
Richard J. Terres, Senior Vice President, BNY Mellon Asset Management, Canada
JJ Woolverton, Managing Director, Chief Operating Officer, Guardian Capital LP

What has been the most significant impact of the credit crisis on large Canadian institutional money managers, and what will be the long-term implications for the management of pension assets?

Roger J. Beauchemin: I would say that the full impact of the crisis has yet to be circumscribed at this time. The immediate market reaction has been to re-establish more of a discipline relative to risk, namely really understanding risks in investments, gauging risk versus expected return and establishing premia more appropriately. Another theme we are going to hear a lot more about is clarity and transparency. I imagine there will be more regulatory pressure on asset-backed commercial paper(ABCP) and alternative investments. Recent events will certainly make opaque financial engineering and products a lot less appealing. In fact, the crisis can be viewed as a reflection of too many investors being focused on the short-term and hungry for incremental yield, with a resulting reduction, and in certain cases outright elimination, of risk premia. As a rule, crises provide markets with a reminder that there simply is no free lunch, and that a long-term approach and discipline are what is needed.

Rajiv Silgardo: I agree with those comments. Money managers, investors, and even banks and broker dealers are all still trying to assess the impact and nature of the crisis. There are differing views on whether what we saw in August was a short-term de-leveraging and unwinding of risk in a typical market cycle-type of phenomenon, or whether it will prove to have been much more structural and longer term in nature. However, what there is little disagreement about now is the understanding that risk was highly overpriced everywhere in the financial markets—not just in structured products. Thus, even in this time of uncertainty investors haven’t stood pat. In Canada, we saw almost a billion dollars come out of money market funds in August. This compares to an average outflow of $400 million in the previous two months. Globally, in a recent broadly based study by Greenwich Associates, they found that almost half of the institutional investors that they surveyed had explicitly changed the credit profile of their investment portfolios away from riskier and into shorter duration government securities. In addition, Greenwich also found that a majority of their study participants had taken a variety of steps to mitigate risks, including more frequent risk monitoring and stricter risk controls. This will become more prevalent and hopefully more permanent.

Len Racioppo: A number of money managers are going to have to provide explanations to their clients as to why they owned certain securities. The reason of course was the reach for return with little regard for risk as is usually the case when liquidity is high and interest rates low. If it is a re-pricing issue for certain securities then perhaps some pension clients with a longer term horizon may understand. If significant losses are apparent then the appropriateness of the investments for the client will be questioned. As well, the manager’s knowledge and understanding of the investments themselves will also come under scrutiny. To say that some investment products are ”opaque” or that significant assumptions were made or even that a rating agency was relied upon is not good enough. We are supposed to be the experts and clients pay us to be so. In the end there will indeed be changes(manager changes and policy changes), risk tolerances adjusted and new parameters set.

Warren Stoddart: In investment terms, recent turmoil in the credit markets represents the turning point in the pricing of risk. The past several years has been marked by a steady and significant decline in the compensation paid to investors for assuming higher levels of risk. As credit and other risk premiums start to increase, returns available to investors will rise, though the process of re-pricing will result in losses for those who made investments at lower levels.

The impact on the business of investment management will clearly be most severely felt by those who had made investments in non-bank sponsored asset backed commercial paper, though all managers will be affected. Capital markets are constantly morphing and the events in the credit area are a reminder of what can happen when the pace of product evolution outstrips the capacity of investors to understand and fairly price the risks embedded in new instruments. Since it’s not a practical option for managers to ignore the changes taking place around them, these events remind us all that doing what’s right for our clients means reinvesting in our businesses in the form and amount required to ensure that our knowledge of the markets remains at the level required to meet those clients’ needs.

Michelle Savoy: While Canadian institutions have largely avoided direct exposure to the U.S. subprime crisis, they have not escaped unscathed. In August, investors learned that a large portion of non-bank, asset-backed commercial paper rated as triple-A clearly did not deserve that rating. A reprieve of sorts was achieved with the Montreal accord, which is essentially a 60-day standstill agreement among a group of investors, money managers and banks designed to prevent panic decisions. When the accord expires in October, these assets will be re-priced and some pension funds will experience losses from money markets, which is an unexpected place to take a hit. The long-term implication is that these securities, which constitute roughly one-third of the Canadian asset-backed commercial paper market, could disappear. With few alternatives, demand for other money market instruments and even three- and six-month Treasuries has already surged, forcing prices up and yields down. If rates continue to come down, the discount rate input on the present value calculation of long-term pension liabilities will be affected. So this could result in a triple whammy: losses, less yield and higher projected liabilities.

Richard J. Terres: Perhaps the most significant impact of the credit crisis on money managers is the realization that not all AAA-rated securities are created equal. The financial engineering involved in asset backed securitized fixed income structures created very complex, hard to price, illiquid securities, which in turn were given high quality credit ratings. Unfortunately, many investors and investment managers without the capacity to do detailed, in-house credit research, rely on ratings agencies as a guide. At the end of the day, the importance of solid investment research(beyond what the credit agencies provide)cannot be overstated. We as money managers owe it to our clients to know the risks involved regarding the securities we own. This crisis has shown, as most do, that the days of the free lunch are over and further discipline and diligence are required going forward.

JJ Woolverton: First, I am not sure that we have yet seen the credit crisis(or at least the magnitude of the crisis). There is still way too much uncertainty out there. If you can’t price the securities, you can’t estimate the ongoing damage. It will depend on the urgency of when organizations have to clean up their balance sheets. This is not a short-lived event. It is a wake-up call that just because there is significant liquidity in the system does not mean you can ignore risk. The focus on yield/income clouded the minds of investors.

What does this all mean to our community? We will have to demonstrate a lot more integrity when scrutinizing the various investment vehicles out there. The investment community has lost a significant amount of credibility here. There will have to be more transparency – and the flight to quality will make it more difficult for people or companies that are on the fringes to raise money. There will be more pension funds asking for external audits of the policies and procedures of the money management firms. The good news, it is probably the excuse needed for the regulators to go after the hedge funds.

Gregory Chrispin: The recent credit crisis triggered a re-pricing of credit risk and forced some money managers to re-evaluate various aspects of their investment decision-making process, especially when it comes to some of the more structured products on the money market side.

The current market turmoil is largely a liquidity-driven crisis. The overabundance of liquidity witnessed in the last few years became scarce in general and virtually non-existent in some asset classes. While liquidity will slowly re-emerge, most money managers will undoubtedly be more selective in where they invest in the future.
Historically, every period of excess(in this case, excess liquidity and innovation in some credit structured products) is followed by a corrective crisis. The crisis corrects some of those excesses and leaves its mark on market players. We believe the most likely implication for the management of pension assets will be in terms of better risk management controls, especially when it comes to liquidity. This credit crisis highlighted the importance of liquidity, which should be integrated into relevant due diligence procedures going forward.

In light of the recent credit crisis and the renewed focus on risk and transparency, how will Canadian pension funds’ demands of and expectations for their money managers change over the next 12 months? What will be pension funds’ greatest investment-related needs going forward and how should the money manager community respond?

Michelle Savoy: Over the next 12 months, the investment management industry will have to focus on greater transparency and integrity. Longer term, future needs revolve around embracing a “different” objective—meeting the pension promise rather than maximizing asset returns. This brings out a whole new set of issues. It’s about understanding liabilities—growth, retirement planning, funding levels, impact of interest rates and impact on the firm. It’s thinking about surplus volatility. It’s about understanding the positives/negatives of new investment vehicles and strategies. It’s coming to grips with the fact that true diversification is so much harder to find. This should be a great time for innovation to help pension plans redefine as well as achieve their goals.

The simple answer is that managers need to add value. Any way possible. Traditional fundamental research long-only investments have a role but so does 130/30, market neutral, commodities, currencies, activist investing, alternatives, etc. We need to help plans work their assets harder. Be more efficient in taking on risk/volatility. Be more global and solution-oriented in a fast-paced and ever-changing environment. We need to concentrate/perfect what we can do and not what is in vogue. Outsized gains are not realized by following the crowd. Success will come more from being good partners rather than just beating an asset class benchmark.

Len Racioppo: It is not clear to me that the demand for transparency will be widespread. We have had hedge fund problems in the past where clients really did not understand what they owned yet, by and large, the reach for return is still quite prevalent.

Client future needs will most likely look toward more absolute return product instead of relative. The area of foreign equity content will become more of a focus as the Canadian equity market slows or simply becomes more concentrated(less diversified). What percent should be in foreign? The use of benchmarks leads to relative performance, many clients may therefore look to absolute returns for total equity. Canadian managers will have to provide and demonstrate expertise in foreign equities.

Warren Stoddart: I think that what is getting described as renewed focus on risk and transparency is really part of a longer term trend that has been in place for some time now. Plan sponsors long ago moved away from performance as the sole item worthy of their consideration and have been progressively more attentive to so-called non-investment matters(compliance, governance, manager business strength and stability, etc.). The result has been and will continue to be greater demands on managers; good performance will always be a requirement, but increasingly, pension funds are expecting that in order to be hired or retained their managers will need to demonstrate excellence in non-investment areas too.

Pension funds’ greatest investment-related need going forward will remain what it has always been, to meet the obligations to plan members, and the response of the manager community should be to deliver the products that address this need. More specifically, there are three things that managers can do better. The first is to provide products that allow for a fair evaluation of manager skill by clearly distinguishing between manager and market returns, which should enable funds to make better hiring and firing decisions. The second is to structure products so that they optimize the value derived from the manager’s skill. While this should result in a better outcome for clients, it may be a difficult goal to achieve in that it will require funds to move away from some traditional product parameters(e.g. no shorting)so that returns are not impaired by constraints that limit manager action but do not necessarily protect clients. The third item is to deliver products that offer some true diversification into pension fund portfolios. Rising correlations across asset classes and geographical regions have been widely observed, meaning that pension fund risks relative to expected returns have been increasing. Under these circumstances, the one characteristic that all funds can benefit from is enhanced diversification.

JJ Woolverton: I believe this “credit crisis” is just a wake-up call. It does not seem like we learned much from the euphoric markets of the late Nineties. Up until recently the risk premia had, virtually, disappeared, especially in the fixed-income area where credit spreads were well below their historical norm, sector spreads were quite narrow and the yield curve was flat—no reward for going long.

What will change over the next 12 months and into the foreseeable future? 1)percentage wise, money managers will spend more on systems, compliance and structure than they will on improving the investment decision-making process; 2)the fastest growing products will be global equity and 130/30 funds; and 3)the greatest risk will be a low-return environment where adding value and proving skill will be hard to come by.

My worry list: 1)that hedge funds will not deliver what is expected and plan sponsors will spent as much time on 5% of their fund as they do on the other 95%; 2)that traditional long-only managers will attempt to move into 130/30 strategies without the mind-set to think “short”; and 3)just because an investment vehicle has a low correlation with other asset classes does not necessarily mean it is a good investment.

Bottom line: the plan sponsor community will require higher returns than what is likely going to be available and will, likely, take on greater risk than what will be rewarded.

Gregory Chrispin: Pension funds will expect increased transparency and more rigorous risk management practices from their money managers. We expect that fund guidelines, in some cases, might be revised. They will become more detailed, and risk management controls will be more frequent and lucid.

We expect that money managers and pension funds will work more closely together to understand the investments and strategies being undertaken, in particular where these investments involve credit related products. As a result, money managers who do not have solid credit research capabilities and procedures will have to rapidly enhance those capabilities, since it has become clear that relying solely on credit ratings provided by the rating agencies is insufficient.

The recent credit crisis did not radically change pension funds’ long-term investment related needs, such as liquidity, performance and relative stability(through a solid risk-management platform). As this crisis is largely liquidity driven, however, it will serve to underscore the importance of liquidity. Money managers should respond by ensuring that their investment decisions satisfy those three conditions(i.e. liquidity, performance and risk management).

Given pension funds’ changing needs and the shift towards non-traditional investment strategies, what will be the greatest growth opportunities for Canadian pension asset managers in the next 12- to 24 months? What will be the greatest threats? What types of money managers are most likely to succeed or flounder?

Michelle Savoy: Canadian pension managers should focus on the long term and not the next 12 to 24 months. Managers with the ability to swiftly launch flavor-of-the-day products may see quick, but fleeting, success. The best long-term strategy is to make sure the skills of the management firm and the long-term interests of its clients are aligned, which means success is measured by the long-term health of the pension fund. This approach requires management firms to partner with plan sponsors to fully understand the issues that plans are faced with today. A good consultative partner should lead to investment solutions tailored to the needs of the plan.

Of course, a client-driven philosophy that focuses on this aspect of institutional relationships—let’s call it “non-investment alpha”—cannot stand on its own. The manager also needs to be able to consistently add value through its investment strategies. The greatest opportunities will go to those that can demonstrate success across a broad spectrum of asset classes and have the ability to use non-traditional asset classes to provide uncorrelated sources of alpha to traditional investments.

The greatest threat to any investment manager is the inverse of its greatest opportunity. It seems obvious, but managers that do not take a solutions-oriented approach, have limited strategy breadth or have not consistently shown an ability to add value will find it difficult to grow in an environment where exposure to beta is cheap.

Len Racioppo: I would reiterate that the greatest opportunity lies in providing foreign products. The Canadian firms that demonstrate this ability will be most successful, and not just over the next 12-24 months. The threats are that foreign firms will successfully bring their products to Canada and Canadian firms will lose dollars under management. This was a concern years ago when foreign content restrictions were lifted for pension funds, but the threat did not materialize to any great extent. The reason of course was the subsequent performance of Canadian assets and our dollar, but this too will change.

There also remains the ongoing opportunity for Canadian firms to sell their products and services beyond Canadian borders. Canadian investment professionals are well educated, experienced and multicultural.

Roger J. Beauchemin: I agree that the correct approach is a solution-driven approach rather than a product-driven one. I also agree that we all need to have a longer term focus. Products come and go, so as investment managers we have to maintain our long-term focus on research and process which results in the best capital allocation decisions and value added. A partnership approach enables asset managers to provide solutions that better suit the liability-side of the equation, or help clients better fulfill fiduciary obligations with product-specific solutions such as target retirement date offerings, etc. Short-enabled and non-Canadian strategies will likely see significant activity in the next 12 to 24 months, but successful managers will still need to demonstrate risk-adjusted, value-added returns.

Mark Doyle: I believe one of the greatest growth opportunities will be in “liability aware” strategies. These include having current fixed income managers buy longer bonds or overlay these managers with interest rate swap arrangements that extend the duration of the assets to better reflect the interest rate sensitivities of a plan’s liabilities. Often combined with long duration fixed income portfolios, swaps can be used to fine tune duration and reduce surplus risk associated with interest rate volatility.

Portable alpha also appears to be finally coming of age. Clients are starting to see the benefit of overlaying rather bland fixed income portfolios with alpha overlays to enhance fixed income returns. If you combine this additional alpha to a long duration portfolio you could also reduce surplus risk and add more consistent alpha.

Another growth area is clearly infrastructure—long dated assets that tend to provide stable, reliable, growing cash flows with diversification benefits to stocks and bonds and a potentially a better match to liabilities.

One of the greatest threats will be to those managers that do not adapt to the evolving needs of our clients. It is not just about beating benchmarks. Clients are looking for advice on how best to solve their pension problems. Successful managers will include those that can provide creative solutions and have the resources to offer up ideas and provide thought leadership across a broad spectrum of investment strategies.

JJ Woolverton: The greatest challenge that plan sponsors have when shifting towards non-traditional investment strategies or products is understanding the risk/reward trade-off of these strategies/products and how they fit within the overall mix. These new strategies have a short-term performance history, are less transparent and are, basically, non-regulated—and very costly.

The fastest growing investment management structure around the world is a fund-of-funds platform. This is how to get into the retail space. The fastest growing strategies/products are: global equity, hedge funds(and 130/30 strategies), private equity and real estate. The greatest opportunity for the Canadian money management community is to develop expertise in these areas. The greatest risk is to ignore these trends and not build the necessary resources to compete here. The ongoing problem here might be too much money seeking too few market anomalies.

The money managers who will be successful will be the ones who adapt to the changing requirements and greater sophistication of the plan sponsor community. The managers who will not make it are the ones that believe the world will return to the norm they have been use to.

One strange phenomenon is this great shift to foreign investing at a time when our domestic economy and markets have been just about the best in the world. We all dislike the “R” word: rebalancing.

Warren Stoddart: I think that pension funds’ needs have remained constant over time, with the primary goal being to meet the financial obligations to plan members as they come due. What has and will continue to change are the proxies that funds use to assess their progress towards this goal(i.e. benchmarks), which in turn impact the types of products that funds demand from investment managers(products are generally built around the objective of beating a defined benchmark, so when benchmarks change, products have to as well).

As funds redefine the way they want to measure success, their new benchmarks may incorporate different sources or measures of alpha and/or beta. The greatest growth opportunities will then be available to managers who can separate their skills from the product through which those skills have traditionally been expressed and repackage those skills in a way that meets the evolving needs of fund clients. The greatest threats will be experienced by managers who are unable or unwilling to distinguish between their abilities and a particular product structure and experience declining demand as client preferences move in favour of new product forms.

Understanding and adhering to a well defined and clearly articulated set of investment principles will always be a key success ingredient for investment managers. Firms that confuse the need to abide by principles with a desire to stop the evolution of the way that principles get implemented in investment decision making and portfolio construction may find themselves increasingly out of step with client requirements.

Gregory Chrispin: Following our American peers, Canadian pension funds will further embrace the trend of separating alpha from beta. Beta exposure is easy and cheap, whereas alpha opportunities are more difficult to find, as the market has become more efficient due to the introduction of new products and new technologies. In my opinion, the greatest growth opportunities lie in two directions: 1)less constrained ways of investing in traditional asset classes, e.g., 130/30 types of products; and 2)further development in alternative investments, e.g., hedge fund strategies, private equity, infrastructure investment, etc. This provides a great opportunity for quantitative managers like State Street Global Advisors. We are well positioned to provide both active extension and absolute return products. Moreover, quantitative investing in Canada is far from being saturated.

The greatest threat is likely to be event risk. Despite the rapid development in capital markets in recent years, many catastrophic event risks still cannot be effectively hedged. Also tied to event risk is the threat of an over-regulation by legislators in reaction to the sub-prime mortgage crisis, whereby pension plans would be facing new restrictions in accessing those non-traditional investment strategies that are required in order to achieve the plan’s return objectives. Another threat in the next 12 to 24 months is likely to be the rising Canadian dollar and volatile commodity prices, combined with uncertainty related to the economic situation in the United States.

Looking further out, what will be the most significant drivers of change for the money management industry in the next five to ten years? What will the pension investment landscape look like 10 years from now?

JJ Woolverton: I believe there are five main challenges for the Canadian money management community going forward: first is the trend towards global—talked about for the past 10 years or so, but now it is becoming a reality. The concentration of our Canadian equity market will speed up the flows of monies to outside our boundary. The challenge is how can the money management community compete with existing, global brand-name firms? These firms are now managing Canadian assets for Canadian plan sponsors. Second, is the abundance of new products/strategies. The traditional way of constructing portfolios is being threatened. Quantitative approaches will either supplement or replace traditional products/strategies. Three, we have seen some very strong markets in both equity and fixed income over the past 25 years—way above historical averages. Value-added results(the alpha being demanded by the plan sponsors)will be very difficult to achieve. Fourth, the growth in the asset base of the pension community is slowing significantly. Defined benefit plans, in aggregate, will be in redemption mode moving out over the next 10 years. It will no longer be the growth area it has been. And, fifth, the competition will become more severe with a lot of our Canadian-focused firms either being bought out or merged with other firms. The institutions are back in business as they can develop products that meet the requirements of the aging population.

As far as the plan sponsors are concerned, in a low return environment, it will be difficult for them to achieve their actuarial hurdle rate—even with all the “exotic” products out there. The pension fund of the future might have an allocation of: one-third equity(global in nature), one-third fixed income(global and longer duration)and one-third alternative investments(private equity, hedge funds and real estate).

Warren Stoddart: The most significant driver of change in the money management industry over the next five or ten years will be the way that intellectual capital is organized. Because asset management is a knowledge-based business, success is overwhelmingly dependent on a firm’s ability to attract and retain the best talent. It’s a virtuous circle; talent drives performance(the right products, appropriate returns), which satisfies clients and produces profitability.

At the risk of being provocative, I think that people who answer this question by speculating about changes in client behavior or product demand are missing the point. These things are inherently unknowable. The most important thing any firm can do to prepare themselves for the future is to ensure that their business is optimally configured to attract and retain the best people, and that the interests of those people are as closely aligned as possible with the drivers of business success. The best people, housed in an environment where they are highly motivated and able to spend the greatest part of their time focused on doing what they do best will inevitably create success.

While I don’t know what the pension investment landscape will look like ten years from now, I do know that the firms that create the conditions that will attract and hold talent(independence in investment matters, culture of trust, fair sharing of rewards)are creating the conditions most likely to lead to success for their clients and as a result, for themselves.

Rajiv Silgardo: I agree fully that the best thing that firms can do to prepare for the future is to attract and retain the best people for the reasons mentioned previously. However, experience shows that the war for talent is only getting more intense. Thus firms have to do a number of things to win this war. They have to scout further afield for the talent—potentially in markets and geographies they may not have looked at previously. They also have to be able to demonstrate opportunities for continued learning and growth for these individuals, because while the right compensation is certainly necessary it is rarely sufficient. Part of this could be the scale and scope of the firm as well as its demonstrated history of being able to evolve successfully into new investment ideas and strategies over the years. Another part can be best described almost as a multiplier effect—once a firm attracts a cadre of well known talent, others are more likely to join for the chance to be part of that team. This is what it will take for firms to succeed.

Thus, I see big firms with a global reach continuing to grow larger and more significant. I also think that the smaller niche players will continue to thrive because of their finely honed skills in very specific areas. The firms in the middle will potentially have the hardest road to hoe as they need to determine which direction will suit them best.

Roger J. Beauchemin: I agree that as investment managers, intellectual capital is key. Attracting and retaining the best people, and doing so over the longer term, is the name of the game. What is critical in being able to add value over longer periods is attracting people and working them into your investment process, keeping people happy and motivated, and managing succession as people retire. It sounds simple but to do that successfully you have to have the right business model, with people owning the business and thinking as owners because then outperformance and clients’ interests drive decisions. You create a situation where you do what is right for the business long term because you have alignment of interests, and you can react quickly to real changes and ignore fads.

I think the most significant change in the pension landscape over the next ten years is already well underway, and that is a continued shift from DB to DC and a toward products geared toward individuals, like target retirement date funds for example.

Len Racioppo: The need for talent goes without saying in an industry driven mostly by human capital. The proliferation of products in recent years will continue in the years to come along with a number of new firms that introduce them. There will, however, be a “weeding” of products and concepts that did not work and the type of products that will succeed in the next ten years may be different as the economic environment itself will be different. The last ten years was an extraordinarily profitable period for money managers and their clients as interest rates declined and economic growth was relatively strong. I doubt the next ten years will provide as favourable an environment.

I expect more and more people to realize that neither a DC nor a DB pension plan alone will provide them with enough capital to live the lifestyle they have become accustomed to during their working years. Thus savings outside the tax-free pension spectrum will take on a more important role. Savings rates in general will have to increase in Canada. Investment managers will find that “pension” assets are a smaller portion of total assets under management.

Mark Doyle: I think that one of the key drivers of change over the next few years will be a much lower equity return than we have experience over the last five years(and more in line with what we should expect in terms of the long run equity risk premium). I think that we will see much more focus of pension plans and their(mostly)corporate sponsors on better understanding the value proposition of their investment management choices. They will likely look for ways to get the type of governance, economies of scale, exposure to non-traditional asset classes, as well as alpha sources that the mega plans have been accessing for years. Whether this will be possible or not is another question. And if not, perhaps corporate sponsors will continue to choose to download the costs and risks to employees.

In terms of investment managers themselves, in a lower return environment it will likely make it more difficult for medium-sized managers to stand out and we are likely to see the continued growth of large diversified managers, who can provide economies of scale as well as niche players who have specific talent and expertise in particular areas.

Richard J. Terres: Several significant drivers of change will impact the money management industry over the next five to ten years. The most significant being the following:

1)War for talent. The “war” will only get more competitive(and expensive)going forward, but is a pre-requisite for success in the asset management business.

2)Shift from DB to DC. Policy makers will need to increase contribution levels for plan participants if DC schemes are truly going to replace the savings/income provided by DB plans.

3)Demographics. Baby-boomers entering the “de-accumulation” phase will continue to shift assets into less volatile, stable, income-producing products. Insurance companies could be well-positioned to capture new assets.

Globally, we will continue to see the rise of Asia/China as an important market for money managers. Several global firms have established/are establishing operations on the ground as the rise of the middle-class becomes a reality and the need for professional investment management increases substantially.

4)Consolidation. Large, global organizations will continue to extend their reach and buy small/mid sized firms throughout the world. Skilled managers will always be in demand; those who consistently deliver alpha will continue to thrive in the future, whether on their own or as part of a larger concern.

Gregory Chrispin: Back in the early years of the 20th century, when pension plans became widespread in North America, the promise of a “lifetime” retirement income meant just a few years, as the average life expectancy of individuals only exceeded their active life by a few years. Today, with the major medical advances that continue to be achieved, many people will find their retirement years nearly as long as their working years. In addition, while today’s senior citizens are often covered by defined benefit plans, the reality is that today’s workers will rely much more heavily on their own savings, whether from a workplace defined contribution plan or registered retirement savings plans than was necessary for earlier generations.

It is therefore expected that changes in the money management industry will be driven not only by the investment markets, but also by the institutional and demographic trends that will shape the lives of future retirees. As the dynamics of legislation, demographics and household net worth evolve in ways that are impossible to predict today, the money management industry will be required to provide integrated solutions for a market of individuals increasingly dependant on their own savings, and who face the very real risk of outliving their income.